Friday, March 19, 2010

Why Is Google Setting an April 10 Deadline in China?

As reported in CNET and elsewhere, Google will tell the Chinese government on Monday that it will close down http://www.google.cn. Operating google.cn requires Google to follow China's laws regarding Internet use, so it will no longer have to follow those laws. In return, the Chinese are expected to block Chinese access to google.com.

Why would Google throw down the gauntlet and risk forgoing Chinese market? First, if the Chinese try to compete with Google, they are unlikely to compete worldwide. Google already has a better search product. As the Internet evolves, it will build its business in the rest of the world with all the economic advantages of scale that brings. If the Chinese build a competitive search technology, it will be inferior by design because it censors search results politically. Unless the Chinese can convince the rest of the world that it wants an inferior search product, a Chinese product won't be as cheap to provide as Google's product because it will never achieve the same scale.

There are two other technologies Google has that will make it hard for the Chinese to block Google in China. One is translation services. Google will continue to serve up search results for Chinese sites, and it can translate those results better than any other company for the rest of the world. The Chinese cannot provide manufacturing and technology to the rest of the world without providing the information its customers need in a language they understand. Google will do that better than the Chinese can. In reverse, Chinese who want to know what's going on competitively will be at a disadvantage without Google's translation services.

Then there is Google Docs (and other downstream applications). Again, if China's customers are deploying these technologies, the Chinese have to provide at least compatibility with them. If I want to collaborate on a spreadsheet in real time using Google Docs, and my Chinese manufacturer cannot access the spreadsheet, I might work with someone in Taiwan instead. Chinese exclusion of Google Docs also forces Chinese to pay the Microsoft tax for Office products, or steal Office products, or find 2nd and 3rd tier products with lower market share.

Microsoft has an opening with Bing, but a difficult opening. It can anticipate the same problems that Google has with Chinese espionage and censorship. Microsoft has its own set of problems already with the Chinese because of theft of its products. It's not clear that gaining search market share in China alone makes it worth the deal it would have to do with China.

In the short-term, Google may forgo advertising sales in China. In the long-run, it will be harder and harder for the Chinese to block Google and stay competitive in Internet-based commercial activity. At some point, the Chinese will allow Google back in China. At that point, Google can either compete with Chinese home-grown advertisers, or buy them. Google's move is a smart way to avoid building localized Chinese services that don't fit with its brand or long-term product strategy.